Understanding Money: Pricing, Hierarchy, Liquidity and more!

Editor’s note: Perry Mehrling is a professor at Barnard College and the instructor for a new course on Coursera called “Economics of Money and Banking”. He shares with us some insights on his course as well as an insightful behind-the-scenes Q&A.

This course introduces students to what I call the “money view” of the modern global economy, which builds on the intellectual traditions of British central banking and American institutionalism. The last three or four decades have seen a remarkable evolution in the institutions that comprise the modern monetary system. As a result, we need a similar evolution in the analytical apparatus and theories that we use to understand that system. But economics has failed to adapt.

This became evident during the financial crisis of 2007 to 2009, a watershed event for economists all over the world because most didn’t see it coming, didn’t know what to do about it when it came, and didn’t know how to change economics afterward. For me, by contrast, it was the beginning of a new career because the “money view” that I had been developing seemed to be precisely the approach needed to make sense of the crisis.

How did you become interested in economics?

I decided to become an economist at the end of my undergraduate junior year. I’d always been good at math, so I thought I would be good at it. But I also remember noticing that the language of economics seemed to be decisive in public debates, much more so than the language of ethics. I thought I’d better learn this language in order to be able to engage in the debate. However, the most important thing to me was that economics seemed to lie behind everything, so if you understood economics you could gain insight into a level of reality that was otherwise inaccessible.

How did your passion for the “money view” of the economy affect your academic career?

It was very tough going and I almost did not survive. In the first years of my appointment at Barnard College, I managed to publish a few papers, but most got rejected. Eventually my department told me that my record was not strong enough for tenure. But they wanted to help me; they proposed that I write a book. I grabbed the opportunity with both hands. My thinking was that even if I didn’t get tenure, at least I would have the book. And so I began looking for a set of intellectual ancestors on whom I could build something. This became The Money Interest and the Public Interest.

My strategy for survival worked, as Barnard awarded me tenure on the strength of my first book, and I have since published several other books. But I’m not sure that there are any lessons for aspiring new economic thinkers other than “persevere.” This comes not from any particular character trait, but rather from a sense of commitment to an important intellectual project. I’ll call that “intellectual passion” and leave you with the message that it is the sine qua non of survival if you are trying to do something different.

Does the field of economics need to change what it teaches students?

Absolutely. There is a need to bring in history and institutions in a more fundamental way by reconnecting the discipline to historical and institutional analysis. Over the course of the postwar period, economics teaching has become more and more academic, removed from practical concerns and wisdom. This was a deliberate attempt to make economics a science. We can now see that we went too far. That’s why I believe this course is so important. Because it is part of the rethinking of economics that the discipline badly needs, and it will help students see the global economy in a far more tangible and realistic way.

What is the coolest thing students will learn if they take this class?

You will learn to read, understand, and evaluate professional discourse about the current operation of money markets at the level of the Financial Times.